HOUSTON (Reuters) - Calpine Corp (CPN.N) said Monday it will expand its fleet of power plants in Texas, but delay construction of two "quick-start" peaker plants until a debate over electric market reform is settled.
Texas, unlike many areas of the U.S., continues to see growing demand for electricity but tight financial markets and low wholesale power prices have stalled construction of all but a few new plants in the state's primary grid, overseen by the Electric Reliability Council of Texas (ERCOT).
State regulators have taken a number of steps to encourage development of new power plants, but a state legislator last week warned the Texas Public Utility Commission "to slow down" on proposed market changes.
Houston-based Calpine, which already owns more than a dozen natural gas-fired power plants in Texas, said Monday it agreed to buy the 1,050-megawatt, combined-cycle Guadalupe Power plant near San Antonio for $625 million, or $595 per kilowatt.
Calpine will purchase the plant from MinnTex Power Holdings, LLC, which is owned by a private investment fund managed by Wayzata Investment Partners LLC of Minnesota.
MinnTex purchased Guadalupe Power in 2011 for about $350 million, or roughly $343 per kw, from a unit of Public Service Enterprise Group (PEG.N).
"We strongly believe in the potential of the Texas market as electric demand increases and reserve margins tighten," said Calpine Chief Executive Jack Fusco in a statement. "Acquiring this modern, flexible and efficient plant in ERCOT`s south zone at a discount to replacement cost furthers our strategic objectives in this key market."
Calpine said its purchase includes development rights for new peaking units already being developed by Guadalupe Power "if market conditions warrant."
Guadalupe Power received an air permit in October for a 470-MW "peaking" power plant to be built at the site and in-service as early as mid-2015.
Regulators have said the state needs additional peaking units which can start-up quickly but operate only when needed to meet rising power demand or to compensate for falling wind generation.
Calpine is already adding 550 MW of capacity at two existing power plants in Houston to be online by the summer of 2014. Officials have said those projects will cost about half as much as new construction.
Calpine and a number of other power plant owners say the economics of the current Texas market under which generators are paid only when they produce power does not justify new construction.
Many favor creation of a capacity market as one way to boost revenue in the state's $29 billion wholesale market while the state's industrial companies oppose such a change, saying it's costly and unneeded.
"The peakers are in effect an option to develop additional new capacity at the same site," a Calpine spokesman said.
Reporting by Eileen O'Grady in Houston; Editing by David Gregorio